I had same problem. I had an
MD2B that I rebuilt with the
Volvo gasket kit. Ran it for a short period of time and it developed water in the crankcase. What I discovered was the
Volvo head gaskets have a seam in the metal cylinder ring. Eventually it failed and the heads leaked water into the cylinders. I replaced the gaskets with Sierra head gaskets (which are much cheaper) that don’t have the seam. Problem
solved. Never had another issue with the engine again.
Then, I upgraded to a rebuilt
MD3B and ran that pretty hard for about a month when it develop the same problem. Rather than go through another
rebuild, my solution was to pull the engine and install a
Westerbeke. No more water in the
oil.